Top UK Stocks to Watch: Greggs shares pop as sales return to pre-pandemic levels

Greggs sales benefit as the high street reopens, Provident confirms it is withdrawing from the home credit market, Centrica continues to see lower demand, Dignity’s new management prepare to shake things up, and Aquila Energy Efficiency Trust prepares an IPO in London.

UK

Top News: Greggs sees strong recovery as non-essential retail reopens

High street baker Greggs said sales have risen above pre-pandemic levels since non-essential retailers were allowed to reopen across the UK on April 12.

Things have been steadily improving for Greggs. Like-for-like sales were down 13.5% in the 18 weeks to May 8 compared to the same period in 2019, before the pandemic hit. However, that slide in sales contracted to just 3.9% in the last eight weeks as non-essential retailers reopened and traffic picked up on the high street. Like-for-like sales have seen ‘positive’ growth compared to pre-pandemic levels since April 12.

‘We saw a significant pick up in sales with the reopening of non-essential retail from 12 April, in part reflecting the pent-up demand for retail which has boosted high street footfall,’ said Greggs.

Overall, Greggs booked total sales of £352 million in the 18-week period. That is up from £280 million the year before and only narrowly below the £373 million booked in the same period in 2019.

‘The current trading environment is clearly highly unusual, making it difficult to predict how sales will develop. In the coming weeks the government's roadmap is likely to lead to further relaxation of restrictions and we will see increased competition as cafes and restaurants are able to compete more effectively with our largely take-out offer. Nonetheless we are pleased with the progress that we have made so far this year in both the walk-in and delivery channels,’ said Greggs.

Greggs has tried to counter lower footfall for its stores with delivery services. Over 800 stores now offer delivery and Greggs now makes 8.2% of all of its sales online.

Greggs said it has benefited from the fact that rivals that rely on seated dining have not been able to serve customers indoors in recent weeks, signalling that competition could intensify when restaurants can fully reopen. However, Greggs said it still hopes to deliver better sales than previously expected this year if restrictions are eased as currently planned by the government.

‘Providing guidance on the profit outcome for 2021 remains difficult given the uncertainties surrounding trading conditions. However, given our recent trading performance, the board now believes that profits are likely to be materially higher than its previous expectation, and could be around 2019 levels in the absence of further restrictions,’ said Greggs.

Where next for the Greggs share price?

Greggs trades above its ascending trendline dating back to early November. It trades above its 20 & 50 EMA on the daily chart showing an established bullish trend.

The RSI is heading towards overbought territory, a move over 70 could prompt a pull back or at least some consolidation.

The Greggs share price has jumped over 8% higher reaching a fresh all time high 2572p, surpassing the pre-pandemic high of 2553p.

Immediate support can be seen at 2400p the previous post pandemic high of last week.

It would take a move below the ascending trend line and 20 EMA around 2300p to negate the current uptrend and see the sellers gain traction towards 2200p.

Provident to withdraw from home credit market

Provident revealed it sank into the red during 2020 after its consumer credit division dragged down results, prompting the company to withdraw from the home credit market.

The company, which runs a number of brands helping people underserved by traditional banks access financial services, said it had ‘decided to withdraw from the home credit market and we intend to either place the business into managed run-off or consider a disposal.’

Provident’s consumer credit division has been facing a surge in complaints and an investigation by the Financial Conduct Authority, which caused it to delay the release of its 2020 results.

The results were worse than expected. Provident turned to an adjusted pretax loss of £47.1 million from a £152.8 million profit the year before. The reported pretax loss at the bottom-line amounted to £113.5 million compared to a £119.0 million profit in 2019. That was considerably worse than the £27.5 million reported profit expected by analysts.

Provident shares were down 5.7% in early trade this morning at 243.3.

The consumer credit division’s losses offset the money made by the profitable parts of the business, although Vanquis Bank saw profits slide 78% year-on-year whilst Moneybarn’s profits halved. Provident said it saw ‘improving trends’ for its credit card and vehicle finance divisions during the first quarter of 2021.

‘Provident will no longer offer any 'high-cost' products and we will not be issuing any high-cost or home collected credit products from any consumer credit division entity in future. We intend to build upon our existing unsecured personal loan product expertise during the course of 2021, in the 'mid-cost' segment of the market, an ambition that stretches back to our capital markets day in 2019. The unsecured loan offering is an important step towards our plans of becoming a broader banking group to the financially underserved customer,’ the company said.

Centrica continues to find it tough during the pandemic

Centrica, the owner of British Gas, said trading has ‘remained tough’ since the start of 2021 as the pandemic continues to weigh on demand for electricity and other services.

The company released a brief update ahead of its annual general meeting later today. Centrica said electricity demand from its UK business customers has been down around 15% year-on-year since the start of 2021. 11% fewer boilers have been installed and non-essential services continued to be postponed because of the pandemic.

‘As expected, trading conditions have remained tough in the year to date. However, the modernisation of our group remains on track and the difficult, but necessary process to move colleagues onto new terms and conditions is now complete. We are pleased that 98% of UK colleagues have accepted the new contracts which will enable us to better serve the needs of our customers. Although the external environment remains uncertain, our tight focus on cash and on fixing the basics across the group leaves us well placed as we continue the turnaround of our company,’ said chief executive Chris O’Shea.

Centrica said its restructuring efforts remain on track to deliver £100 million of operating cost savings in 2021. It also ended March with net debt of just £500 million compared to over £3.0 billion at the start of the year after using the proceeds from the sale of Direct Energy to shore up its balance sheet.

Given the ongoing uncertain outlook, we are still not providing any specific group earnings or cash flow guidance for 2021. The company is due to release its 2021 interim results on 22 July 2021,’ Centrica said.

Centrica shares were trading 0.6% lower in early trade this morning at 57.53.

Dignity sees revenue and profits rise but loses market share

Funeral service provider Dignity reported an increase in revenue and profits during the early stages of 2021 after benefiting from a significantly higher number of deaths during the pandemic, as investors wait with bated breath to find out what the new management will do with the company next month.

Earlier this year, Dignity shareholders revolted against the board, ousted its chairman Clive Whiley and replaced him with Gary Channon, a partner from one of the company’s largest shareholders, Phoenix Asset Management. That sparked a wave of resignations from other board members.

‘On 12 April 2021, I laid out my vision for Dignity which contained a number of potential actions aimed at securing Dignity's future and building a better business for bereaved people, our staff and our partners. As we navigate out of the pandemic, and in light of regulatory changes in our industry, our hope is to lead positive change in our sector and become the true market leader with an unrivalled focus on quality, standards and choice. We are working hard on this plan and look forward to presenting it to shareholders at our AGM on 23 June 2021,’ Channon said.

Dignity said underlying revenue was up 14% year-on-year in the 13 weeks to March 26 to £94.7 million from £83.1 million the year before. Underlying operating profits jumped 35% to £26.1 million from £19.4 million. That was the result of the number of deaths rising 27% year-on-year.

Although Dignity is one of the largest funeral providers in the UK, it has struggled to gain market share, which has fallen to 11.5% from 12.2% a year ago, according to estimates made by the new management. That has been down to reduced demand for full-service and pre-arranged funeral plans, which should improve as rules on the number of mourners are eased.

‘COVID-19 has had a distorting impact on the business both in terms of operations and the financial results, making comparisons to the prior year difficult. It also makes the short-term future hard to predict because we don't know whether we face a period of a lower than the average death rate or another wave of contagion and a subsequent higher number of deaths. The restrictions on funeral sizes continue to impact the average revenue per funeral. Setting all that aside, the group remains financially robust and profitable,’ said Dignity.

Dignity shares were trading 0.6% lower in early trade this morning at 721.0.

Aquila Energy Efficiency Trust prepares IPO

Aquila Energy Efficiency Trust has outlined plans to launch an initial public offering in London to raise funds so it can create an investment portfolio of products, services and businesses that help improve energy efficiency and reduce carbon emissions.

The company intends to list on the premium segment of the Main Market of the London Stock Exchange and raise up to £150 million. It said it intends to invest in a wide range of opportunities from smart meters and energy efficient lighting to solar panel batteries and electric vehicles.

It will predominantly focus on opportunities in the UK, Europe and Switzerland and invest up to EUR10 million in each opportunity, although larger ones will be considered.

Notably, Aquila Energy Efficiency has said it is aiming to deliver a dividend of at least 3.5 pence in 2022 and 5.0 pence in 2023 before adopting a progressive policy. It hopes to deliver total shareholder return of 7.5% to 9.5% each year over the medium-term.

Today is a very exciting day for Aquila Capital as we launch a new listed fund offering on the London market that offers an opportunity for investors to gain exposure to a rapidly growing infrastructure sector. The highly diverse EUR210 million advanced pipeline that we have assembled for the fund is predicted to generate stable cash flows for shareholders and significant environmental impact,’ said Alex Betts, the senior investment manager of Aquila Capital.

‘We believe the target annual returns are attractive, providing investors with an asset backed combination of income and capital growth. We aim to generate these compelling returns for investors while providing a crucial service in reducing primary energy consumption and CO2 emissions while delivering economic savings for clients and supporting the transition to an economy driven by efficient and clean energy systems,’ Betts added.

A prospectus will be published on May 10 and the company hopes its shares will start trading in London on the morning of June 2.

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